The Telegraph
Since 1st March, 1999
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L&T fails to decide on demerger

Mumbai, Dec. 7: The Larsen and Toubro board meeting today failed to arrive at a decision over the proposed demerger of the cement division. The meeting has been deferred to another date.

However, it has triggered speculations of a schism within the board and that both Aditya Birla group chairman Kumar Mangalam Birla and Rajashree Birla had issued strong words of dissent over the proposal.

This could not be verified as Aditya Birla group officials, nominees from financial institutions and other senior board members from L&T refrained from making any comments.

A final decision also could not be reached over the offer made by Commonwealth Development Corporation (CDC), which is interested to pick up more than 6 per cent stake in the demerged entity.

The board meet, which began at 2 p.m. at L&T headquarters here, lasted for only an hour. Following the meeting, a director told newspersons that while the matter was “tabled and discussed, no decision has been taken.” The matter will be considered again in the next board meeting, he added. Sources revealed that the date of the next meeting will be decided in the coming week.

Some of the board members wanted “more time to study the entire proposal” and they sought clarification on various issues, sources told The Telegraph.

The issue of demerger is believed to have found favour with a committee which comprises both institutional and senior management of L&T. FIs hold over 40 per cent in the company.

Industry observers do not rule out the possibility of the Aditya Birla group making an alternative suggestion of hiving off the cement division but restricting its membership to only include L&T’s existing shareholders.

The A V Birla group presently has little over 15 per cent of the equity in L&T. Life Insurance Corporation has recently raised its holding to 18.4 per cent and has the option to go up to 20 per cent.

However, in a major setback to its plans, A V Birla group’s open offer to mop up additional 20 per cent of the latter’s equity has been stalled by the Securities and Exchange Board of India (Sebi).

During last month’s proceedings at Securities Appellate Tribunal over the open offer issue, Grasim Industries had said that it was kept unaware about L&T’s plans to restructure and demerge its cement business along with a proposal by CDC.

Birla had in a letter also expressed displeasure over L&T management’s action of presenting the restructuring proposal with CDC at a short notice just before the close of the board meeting held on October 29.

In response to this, L&T managing director A. M. Naik had clarified to Birla that as the issue of demerger of cement business has evoked a lot of interest among the investor community and any development is considered price-sensitive information, “it was felt desirable that till such time the issue is discussed at the board meeting and a conclusion is arrived at, this matter be kept strictly confidential.”

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